US markets had a rather subdued week, with retail woe on the one hand being offset by a fairly buoyant technology sector. There is also some concern that the weak retail data may well be signalling the beginning of a softening in the US economy at precisely the time the Fed looks set to trigger another rise in rates at next month’s meeting.
With the market fully pricing in a move could we start to see a situation where the prospect of a move starts to get walked back? US yields appear to be suggesting that if Friday’s moves are an indication.
There is also the prospect that the cyberattacks that we saw at the end of last week could spread further to cause financial and economic damage when companies return to work this week.
Last week was a bit of a strange one for Europe’s markets, with a slightly softer tone to sentiment in the aftermath of the French presidential election. The economic numbers out of Europe have thus far this year been fairly robust, and particularly strong in France, which is rather good timing for new French President Emmanuel Macron as he gets set to meet German Chancellor Angela Merkel for the first time when he visits Berlin, later today.
The German Chancellor who only decided to run again for a historic fourth term quite late on in the German elections later this year will be feeling quite happy having seen off her rivals at the SPD and the challenge of their new leader Martin Schulz in state elections at the weekend, in North Rhine-Westphalia.
As we look ahead to a new week the FTSE100 was able to post a record close at the end of last week, with oil and gas, health care, tobacco and financials putting in a strong performance, while the pound slipped back having run into a bit of a roadblock just below the 1.3000 level, after some weaker than expected economic data, and a slightly downbeat Bank of England.
This recovery in the oil and gas sector could well continue this morning on reports that Saudi Arabia and Russia have agreed to do “whatever it takes” to keep a floor under oil prizes and extend the output freeze until March 2018, which has prompted oil prices to extend last week’s gains.
This week’s UK economic data is likely to be a key arbiter for the next move in the pound, particularly since CPI has pushed up above the Bank of England’s 2% inflation target, having closed the gap to wages, and exacerbating an income squeeze that is currently weighing on consumer spending.
For most of the last few weeks while most of the markets attention has been on Europe and the strong data being seen there, it’s almost gone unnoticed that the latest data from China has been rather weak to say the least.
Both manufacturing and services PMI’s have slid back against a back drop of a slight tightening of credit and a slowdown in economic activity.
In March we saw a significant pick up in both manufacturing and retail sales data with industrial production hitting its highest level since December 2014 at 7.6%, from 6.3% in February. There is now a concern that this may well have been a one off given the sharp drops seen in commodity prices in the last few weeks.
This morning’s industrial production and retail sales could well be key indications as to whether China’s economy, having seen a decent end to Q1, might be on the cusp of a bit of a soft patch as we start Q2.
Industrial production for April came in at 6.5%, well below expectations of 7%, and a worrying confirmation that the March pick up was a one-off, while retail sales came in at 10.7%, down from 10.9% in March.
EURUSD – currently stuck between the 200 day MA and 1.0820 area, and resistance just above the 1.1000 area. A move through 1.1030 argues for a move to 1.1200, while below 1.0800 could well see further losses towards 1.0640, thus filling the gap higher seen at the beginning of April.
GBPUSD – currently looking a little soft with resistance now at 1.2920, but while above the 1.2820 area momentum should remain positive. The 1.3000 area remains the key hurdle to overcome for a move towards 1.3300 Only a move below 1.2750 argues potentially back towards the 1.2600 area.
EURGBP – we saw a nice rebound from the lows last week with resistance at the 0.8490 area, which could see an overspill towards the 0.8520 area. While below 0.8490 the risk remains of a move back to the 0.8300 area.
USDJPY – having been unable to push through 114.40 we’ve seen the US dollar slide back with the prospect that we could see a move back below 113.00 towards the 112.40 area.
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